Sunday, February 13, 2005

Are You Ready for an IRS Audit?

Well maybe you should be, according to an article at the Washington Times. This was also a topic discussed at my recent CPE conference as well. Apparently the new IRS Commissioner, Mark Everson, has promised to step up the audit efforts.

So who's at risk of being audited? According to the Times, taxpayers who make more than $100K have a 1 in 20 risk of being audited. How do you prepare for the possibility? In a word, have your receipts in order. And here's what the article suggests:

To prepare for a possible audit, "Make sure that you have included all of your tax reporting and income documents, such as W2s, 1099s, etc., in your return and retain those records," said Gloria Huffman, analyst for Liberty Tax Service. "Keep a logbook of any business mileage and expenses to substantiate any deductions."
After an audit, defending against an IRS inquiry is more complex but still manageable, according to tax preparers.
"There are no sure-fire ways to avoid an audit," said Mark Steber, vice president of tax resources for Jackson Hewitt Tax Service.
He offers the following tips to anyone who is audited:
•Always provide clear, concise answers and documentation. Include copies of your documents.
•Never send in originals without making copies.
•Be timely with your response. Most notices and inquiries from the IRS have a deadline. It is important to be aware of that deadline and respond promptly to prevent an escalation.
•Consider using registered mail with your responses to document your communications.
•Be aware that the IRS usually is looking for simple answers to simple questions. It is often easy to provide the information and resolve the matter quickly. For more complicated situations, it is best to hire a professional.

Of course, I would suggest hiring a tax professional no matter what. In every audit in which I've represented a client, the IRS worker has been less than knowledgeable about the applicable tax law. In each case, it was up to me to prove the legality of my clients' case. Without such a representative, the client's would simply taken the IRS employee's word as to what was allowed and what wasn't and would not have known that IRS employee was mistaken. I'm just saying.....